Your personal credit rating: How to understand and improve it

 

Applying for a loan, mortgage or even something as small as a credit card can seem like a painstakingly long task. You can never be too sure whether or not the lender will accept your request, while your financial circumstances will have a significant impact on whether or not you can get such a financial product, as well as the amount you’re loaned.

The sole determining factor in whether you’re able to get a loan or credit of any kind from a building society or bank is your credit rating. Everyone with at least some financial responsibilities (basically, a bank account) has one, and the higher it is, the more chance your application for extra credit will be accepted. But how is it calculated?

Being sensible

Your credit rating is worked out by an agency that works on behalf of lenders – usually; it’s Experian, Credit Call or Equifax. All three will draw on your history of unpaid or late bills, personal debts, financial judgements, moving house, errors made on your report that are the result of identity fraud and multiple rejected credit applications. The data gathered will then be passed on to lenders.

If you’ve left bills unpaid, moved home too often, lived beyond your means or have had no financial responsibilities whatsoever, then your credit rating is likely to be low. This will harm your chances of getting a loan, meaning that you’re left to look at ways of improving your credit rating. Fortunately, personal income, social background and previous credit checks have no impact on credit scores.

 

Improving your rating

To boost a low credit rating, there are a few things you might consider. It doesn’t require a lot of effort, but if you need something big like a mortgage, it’s worth making one or two small sacrifices, as in the long run, they could enable you to get on the property ladder, buy that new car or put you on a firmer financial footing. Here are a few tips to consider:

• Increase debt repayments. It doesn’t have to be by a lot, but paying an additional £10-£20 per month will help to gradually reduce any debt mountain you have. Credit agencies and lenders are likely to take note.
• Use a credit card responsibly. Access to credit cards is surprisingly easy, but if you show you can use one without going over your limit, you’ll have proved you can be trusted.
• If you have any savings, use them to supplement your income. Using something small from your savings account to clear debts and spend on the basics could make it easier for lenders to accept your application.

“Set up a regular savings account and shop around to make sure you get the best rate. Ensure that you are on the electoral roll as this can improve your credit score. Review your day-to-day spending to see if you can make any cuts to increase you’re saving, then set up a budget for essentials and stick to it” commented a spokesperson from Yorkshire Building Society.